"The unintended consequence of such actions, as we are witnessing in the U.S. currently, is the ongoing battle with deflationary pressures. The lower interest rates goes the less economic return that can be generated. An ultra-low interest rate environment, contrary to mainstream thought, has a negative impact on making productive investments and risk begins to outweigh the potential return."

"A wave of 'disinflation' is currently engulfing the globe as the Eurozone economy slips back into recession, China is slowing down and the U.S. is grinding into much slower rates of growth. Even Japan, despite their best efforts through a massive QE program, cannot seem to break the back of the deflationary pressures on their economy. This is a problem that has yet to be recognized by the financial markets.

The recent inflation reports (both the Producer and Consumer Price Indexes) show deflationary forces at work. Wages continue to wane, economic production is stalling and price pressures are falling. More importantly, there are downward pressures on the most economically sensitive commodities such as oil, copper and lumber all indicating weaker levels of economic output. The battle against deflationary economic pressures has been what the Federal Reserve has been forced to fight since the financial crisis. The problem has been that, much like 'Humpty-Dumpty', the broken financial transmission system, as represented by the velocity of money, can't be put back together again."

The last paragraph above is particularly important. The biggest fear of the Federal Reserve has been the deflationary pressures that have continued to depress the domestic economy. Despite the trillions of dollars of interventions by the Federal Reserve the only real accomplishment has been keeping the economy from slipping back into an outright recession. However, when looking at many of the economic and confidence indicators, there are many that are still at levels normally associated with previous recessionary lows. Despite many claims to the contrary the global economy is far from healed which explains the need for ongoing global central bank interventions. However, even these interventions seem to be having a diminished rate of return in spurring real economic activity despite the inflation of asset prices.

Despite the ongoing rhetoric of those fearing inflation due to the Fed's monetary interventions the reality is that such actions have, so far, failed to overcome the deflationary forces of weak global demand. The chart below is the spot price of copper. Copper, often dubbed "Dr. Copper", is very sensitive to economic growth as copper is used in everything from production, to manufacturing, transportation, housing, etc. So goes copper - so goes the economy. Copper is currently confirming the peak in economic growth for the current cycle.

However, the question remains, do we have inflation or don’t we? Are we experiencing the 1970’s all over again as inflation kills the economy, or in the words of Ben Bernanke, have we entered an era of low inflation and interest rates that will last for some time as the threat of deflation remains a prevalent enemy to the economic recovery?

3 Components Of Inflation

I believe that there are three components required to create a truly inflation environment.

Commodity price inflation is certainly one of them as it does immediately impact the consumptive capability of the average consumer. However, in order to see true pricing pressures across the economy there are two other factors that are critical; 1)the velocity of money, or how fast money is flowing through the system from the banks to small businesses and ultimately consumers, and; 2) wage growth which gives the consumer increased purchasing power.

Why are these two factors so critical to overall inflation question? In the most recent NFIB survey only a small fraction of respondents stated that this was a “good time to expand their business” while the majority of respondents stated that their major concerns were “poor sales, taxes and government regulations”. If you are a small business, who coincidently creates roughly 70% of all new jobs in the economy, and you are worried about poor sales prospects and a weak economic environment, it is highly unlikely that you are going to borrow money to expand your business or extend credit to customers. Businesses in turn choose to hoard cash as a hedge against a weak economic environment instead of making productive investments that will lead to more jobs and higher wages.

Besides the rise and fall of commodity prices, which do indeed contribute to the inflationary backdrop, the demand for money to make productive investments by businesses which leads to higher levels of production, wage growth and, ultimately, consumption is what drives overall inflation. It is important to remember that in economics inflation is:

"...a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy."

It is very difficult to have a "general rise in price levels" amidst a lack of consumer demand driven by suppressed wages, high levels of unemployment and little demand for credit by businesses. The lack of demand exerts downward pressures on the pricing of goods and services keeping businesses on the defensive. This virtual spiral is why deflationary environments are so dangerous and very difficult to break.

I have constructed a composite "High Inflation Index" in an attempt to measure these three legs of inflationary pressures. The purpose, of course, is to visualize the data to determine if inflation is prevalent in the current economic cycle or not. The index is equally weighted of the M2 Velocity of Money, the Year Over Year (YOY) percent change in wages and the YOY percent change in the Consumer Price Index (CPI). The first chart shows the historical levels of each of the three components.

Notice that there is a very tight relationship between the rise and fall of compensation of employees and the velocity of M2 money supply. With M2 velocity plunging to historically low levels this does not bode well for sustained increases in either employment or compensation as the demand for money simply does not exist currently. The next chart is the weighted average of the three components into an index.

The index clearly shows the "high inflationary" pressures that were prevalent in the 1970’s as the economy suffered real inflation and rapidly rising interest rates. Recently, inflationary pressures rose as economic growth surged from the lows of the financial crisis as the economic system was flooded by trillions of dollars of stimulus, bailouts and financial supports. However, that surge, in both the economic growth and the inflationary pressures, peaked in early 2011 and have been on the decline since. This is why the Federal Reserve remains extremely worried about the diminishing rate of return on their monetary experiments as it relates to the economy. Inflating asset prices higher have increased consumer confidence but has had little translation into the creation of underlying economic growth.

With the index clearly warning of rising deflationary pressures in the economy, which has recently been seen in many of the manufacturing reports that have shown downward pricing pressures both on prices paid and received, there is no "exit" currently for the Federal Reserve to reduce its monetary supports. The real concern is that with the index at just 4.88%, which is well below the long term average of 11.63%, that the economy is far to weak to handle much of an exogenous shock.

The risk, as discussed recently with relation to Japan, is that the Fed is now caught within a "liquidity trap." The Fed cannot effectively withdraw from monetary interventions and raise interest rates to more productive levels without pushing the economy back into a recession. The overriding deflationary drag on the economy is forcing the Federal Reserve to remain ultra-accommodative to support the current level of economic activity. What is interesting is that mainstream economists and analysts keep predicting stronger levels of economic growth while all economic indications are indicating just the opposite.

Despite the Fed's recent communications that they are planning to "taper" the current monetary program by the end of this year - the index is suggesting that their interventions, in one form or another, are unlikely to end anytime soon. The threat of "deflation" remains the Fed's primary concern.

Smart people are overthinkig this. They believe only uber smart manipulation of the money supply can create wealth.

But the Federal Reserve and Central banks produce nada, zilch, zippo. In fact, if money is information (especially in it's current digital form) then ALL monetary intervention can do is introduce uncertainty (i.e. negative information) into the system.

In other words, Bernanke is ALWAYS pushing on a balloon, otherwise he would be a perpetual motion machine able to create free lunches out of thin air. So the only solution is fixed rules and/or gold (or bankers being used as Christmas tree ornaments on lamp posts)..

The reason you need free markets is to ascertain value on a dynamic basis founded on the real world. This is why ZeroHedge paranoia is right on the money. The problem is knowing the timing of the collapse is unknowable.

"a misallocation of human resources at both a profound and galactically significant level." it's hard to imagine deflation in the USA with the war effort such as it is...however...this is a rather paltry war effort effort compared to World War II. we definitely had an inflation then do to the massive production and energy consumption needed to "maintain victory." interesting in order to keep inflation up (barely) "the private banks signed off on massive amounts of quantitative easing for a decade." that was TOTAL war back then and included a draft which lasted until 1973. Japan has a massive mis match between productive assets and their debt. same is true for many countries in Europe as well. (remember Greece at 300 percent interest rates? ah, the good old days.) i think if there is any hint of Japan setting off a wave of deflation globally (knock on effects in Great Britain itself?!!! Russia??? South Africa?) then clearly the Fed will stomp on those rates "just in case." we'll see of course but i'm hoping yields on the ten year hit Japanese levels within say...six months.

Yawn. What has happened in Japan is the following: first, the spectacular bubble of the 80's/90's resulted in real estate prices that were insane. Since then the insane prices have come down to be simply crazy. The BOJ and the government have fought this price decline tooth and nail with every policy trick they can think of. Secondly, the cost of living is higher now than it was even back then.

So to answer your question, what they have seen is INFLATION. Inflation is the fake creation of credit.

If the price of stuff goes down in America, I will let you know. That would be great. No wars, no collapse. We would all be getting more prosperous. THAT'S NOT WHAT WE SEE. I see groceries and everything costing more. Society is coming unglued, you don't have to be a critical thinker to see that this country is on the brink. That's inflation.

The Japanese bubble was caused by the same thing that caused America's bubble(s): credit creation. Credit creation.

The system continually creates money backed by nothing and charging interest. This gets expanded through fractional reserve banking and this gets expanded through ever higher levels of financialization of everything. There is never enough money in the system to pay off the debts due to the interest being charged up the expanding money system so it requires more and more. Sooner or later the system approaches the realization that there isn't enough money and banking and financials implode (kinda like deflation in 2008) but they will be bailed out with more money as needed (inflation since bailout/QE after 2008). I think deflation and inflation are both inherent in our system and once the bail outs reach escape velocity you will see hyperinflation as people lose faith in FRNs.

Right now, we are seeing disinflation. The price of gasoline, copper, timber, etc. is coming down. There are certain expenses that are irreversible when their costs go up like taxes, tolls, and any other government created expenses. I think if Bernanke does not raise the amout of asset purchases (insanity), we will continue to see disinflation. The price of food and commodities could continue to drop, but to say we will enter deflation is a little too optimistic (it would actually help the economy).

Gas is not coming down significantly right now. Real deflation in gas would bring it down to below 2 bucks like in the 2008. There was a brief period of real deflation in 2008 but the trend for the last 10 (and 100) years has been inflation in the price of gas.

A slowing in the rate of price inflation. Disinflation is used to describe instances when the inflation rate has reduced marginally over the short term. Although it is used to describe periods of slowing inflation, disinflation should not be confused with deflation.

Hyperinflation suggests that a government is willing to print money to pay off its debts.

When this stops working and no one is willing to lend to an inflating government any longer they increase taxes and seize the assets of their citizens...both very very deflationary.

In the 20's Germany didn't disappear because there were other currencies the Germans could get hold of to maintain some sort of an economy....likewise in Zimbabwe now. They have a black economy fueled by dollars.

People can work around hyperinflation but total deflation is the killer of empires.

You're not wrong. As the cost of big government increases exponentially they, with the help of bankers (or bankers with the help of governments) inflate currency to their own ends...to their mutual benefit, subversively stealing the wealth of Joe public.

They increase the debt bubble until it POPS leading to rapid deflation....the ultimate killer.

I don't actually agree that the Dollar will get weaker, quite the opposite in fact.

As Japan, China and Europe become increasing unstable big money will rush into the last (perceived) safe haven that is the dollar......Just before this final bubble pops.

You can have a collapse in demand from individuals. You just meed more slaves/consumers with lower wages, higher taxes to make up the difference. Opposite of production (lower costs by producing more).

yep, and that's why the kings and emperors have expelled the usurers from their realms. every time the parasites nested in a new country, the local economy went into the shitters in the long run and their host died or the host got rid of the parasites.

The Great Depression is one obvious example of deflation. Everything Bernanke has done has been to avoid a Great Depression type scenario.

Don't get me wrong. Who wouldn't love less expensive prices, but I don't know anyone anyone who wants lower wages? Since wages don't usually get reduced in actuality, people are laid off or given less hours instead. Companies defer investments because they don't want to invest in assets or people when they can buy them or hire them at cheaper prices in the future. While I have been worried about inflation for the last 4 years like many people, I'm starting to become much more concerned about a deflationary scenario.

So you think wages are being held up by Bernanke's Quantative Easing despite the fact that supply and demand decide wages (number of workers to job available). All employers have to do is pay more than unemployment (if they really need workers) and more than other countries willing to import foreign workers. It's not Bernanke that is propping up wages, he is completely fucking the middle class over by hiking expenses. Your account is only a month old, you should continue to read the articles. I hope you haven't been reading the article all along and believe in what Ben is doing (no offense).

I have been a constant critic of QE. Personally, I would have preferred that we accept short term pain for long term sustainable growth, but unfortunately the Fed chose to create this mess instead. They have to know that the equity and housing markets aren't reflecting the underlying fundamentals. What do they do now? Pop the asset bubbles and watch the two bright spots, equity markets and housing prices turn south along with worsening the already weak employment and production figures.

The fact is there are a lot more wars that have started from deflation and/or unempoyment than inflation. We have seen Iraq, Venezuela, and Argentina all experience tremendous inflation and no wars. On the other hand, look at places with tremendous amounts of unemployment, places like Libya, Egypt, Syria, Spain, and Greece. It isn't a good formula to have half your youth unemployed and broke. They start protesting, which sometimes turns to riots, which occasionally leads to revolution.

Think about it. World War II was the perfect cure for the Great Depression. When you have no economic activity, a war is a great way to create economic activity. When you have inflation a war that increases economic activity is the last thing you really want.

I hate the QE path that we have gone down, but my only point is that anyone that claims deflation doesn't exist or isn't a problem isn't looking at history.

Personally, if I was Bernanke I would get out of town and let Yellen sink with this ship either way, after all she contributed significantly to this mess.

They have been fighting the deflation of shadow money supply quite vigorously, but until excess reserves exceed the size the of both the required shadow banking de-leverage and net derivatives exposure-- there is a real threat of deflation, which they continue to battle by inflating the money supply- which unfortunately does trickle-down to the peasants and their little slice of the economic pie...

$100 cars and $.75 cigars aren't deflation. Deflation is when the bankster holding a trillion dollars in interest rate derivatives is in the money on his position and has a competing claim on your bank deposits for money which can either be used to buy cars, cigars,or otherwise generate activity in the real economy, or be hoarded on his balance sheets which only exist in the financial unterverse/andereverse, and generate no real economic activity.

So far, all the comments I've read are idiotic, but yours goes all the way to fucking stupid.

Yes, there is some price inflation, caused by banksters using their free lucre from the Fed to speculate in the commodities market. However...

1. Oil prices are NOT a sign of inflation. They are a sign that the stuff is getting harder and harder to come by. Thus, high oil prices are a sign of deflation, or, to be more accurate, are pushing a deflationary dynamic. Spend more for oil, you have less to spend on other things.

So far, I haven't heard ANYONE ask what factor high food prices, or the higher cost of other things, is caused by the high price of oil. Your food is made out of fucking oil, in the sense that it is grown with tractors, pesticides, GMO technology, and fertilizers, al of which need oil.

My guess is that oil costs are driving the apparent "stagflation" we are seeing.

2.Deflation is your friend???? You are a fucking moron. (To all those who say no social upheaval comes with deflation, go study up on your K-wave theory).Here is what happens in a deflationary environment:

A. First, financial ponzi collapses in a dramatic fashion, destroying the grater part of "money" (ie credit/debt) overnight. When everyone wakes up, the amt of money in the economy has decreased by a massive amt., say 9/10.

B. No money means everyone holds on to what little of it they have. Velocity comes to a screeching standstill, which has the virtual effect of vaporizing the remaining money supply to close to zero.

E. Prices plummet, which sounds good, but prices fall because no-one has any FUCKING MONEY, because everyone is out of work. There isn't any food to buy, even at reduced prices. If you find a cigar at all, it will be the stub of one you pick up out of the gutter, and you'll be happy for it.

Deflation means hunger, unemployment, aimless wandering, starving orpahaned children in the streets, social upheaval, and war.

The last deflationary epoisode, and all those that preceeded it, were caused entirely by the promiscuous creation of debt by fractional reserve banking.and the embrace of the sin of usury. This cycle is DIFFERENT.

In addition to the prevalence of the above, which is at unprecedented levels,(DERIVATIVES, BITCHEZ!!!) our global economy faces several historic and unprecedented systemic deflationary drivers:

I. Energy shortfalls. Peak oil is a reality.

II.Climate change. When you spend all of your time digging out from the last disaster, you have less time to do productive things.

III. Peak population growth: A declining human population is NOT a good thing, in economic terms (despite being good in environmental terms).

IV. Fukushima and nuclear power in general. Fukushima is killing the North Pacific. You can't kill a fifth of the planet's ocean surface and expect inflation. You just can't. But once deflation really gets going, expect the rest of the world's nuclear reactors to start failing, melting down, leaking, and otherwise spewing radiation all over the fucking place. Why? Simple- no money, no spare parts. Here's how it works: Dumbfuck Power and Light Inc, is run by greedy, incompetent fuckheads. What have they done? Gambled in the markets. All of a sudden they wake up and are broke. The gummy-mint can't bail them out, they're broke. Everyone's broke. But Dumbfuck Power and Light owns a nuclear power plant. It has rusty pipes, sticky servos, leaky valves, etc, etc. DPL has no money to buy parts or hire workers to make repairs. Hell, the companies that MADE the parts are broke and out of business!! What can DPL do? Walk away, that's what.

If you think that a world which becomes essentially uninhabitable by anything more complicated than a cockroach is vulnerable to inflation, I will leave you to your auric fantasy world.

V. Comets. If you're not paying attention to comets, (because you're too busy refreshing your Kitco page every two seconds), you're in for a big and unpleaseant surprise. A deflationary surprise.

To sum up: I will lay odds that every idiot here who claims inflation owns gold. That means you want inflation so bad, you have created your own delusionary reality. It's not my problem, but I don't have to sit back and take the insanity lying down.

Oil prices are NOT a sign of inflation. They are a sign that the stuff is getting harder and harder to come by. Thus, high oil prices are a sign of deflation, or, to be more accurate, are pushing a deflationary dynamic. Spend more for oil, you have less to spend on other things.

The US creates the majority of the oil we use, and contrary to popular belief we export only 8% from the M E.And we Export 28% of all our refined gas & diesel to get higher prices overseas.There is a glut of oil in the US and the pricks keep the prices up, and the Specs just jack the price up of crude(just like the metals, they are paper game manipulated).Coal is once again our main souce of energy used.

A reminder that inflation is the increase in supply of money/credit. Rising prices are a symptom, not inflation itself. Malinvestment due to distortions in price signals is another huge consequence. And prices are more so rising 8-14% and often more, depending on sectors (there is no aggregate stat to gauge because inflation is not homogeneous). But even if say something 'only' went up 3%, in a free market w/o ctrl-p'ing, the price might have fallen 4%. So I look at that as a lot bigger deal than the 'accounting' increase of 3%. It's called opportunity cost/what would have happened.

Deflation is a healthy thing. Purchasing power goes up and productive people reap the benefits of their productivity gains, as opposed to inflation where parasites closest to the source of new fiat printed gain whereas for everyone else, there's higher prices.

Both inflation and deflation are two sides of the same bankster coin. inflation is the fattening up stage, and deflation is the shearing /slaughtering stage.

To continue the analogy, we're in a unique situation, where the banksters got so greedy they allowed their sheeple to overgraze the range- now the deflation they hoped would be a harvest will be so devastating all they will have will be bleached bones- it will be a deflation that will take them out too.

reading all these posted comments below makes me UBER PROUD to be a zerohedger!!

DEFLATION BOGEY MAN IS PROPOGANDA. INFLATION IS STEALING FROM THOSE WHO LABOUR, AND FROM THOSE WHO USE THEIR CAPITAL "TO MAKE THINGS".

MY ONE DOLLAR USED TO BUY A LOAF OF BREAD - HELL IT CAN NO LONGER BY ONE SLICE IN A LOAF OF BREAD. WHERE IS THE REST OF THE LOAF? THERE IS A REASON THE BANKSTERS AND THE BANKER CARTEL OF CENTRALS BANKS AND CORRUPT POLITICIANS ARE CALLED FAT CATS!!! AND THEY CALL THIS INFLATION!!!!!!!!!!!!!!!!!!!!! I CALL IS FRAUD AND THEFT AND STEALING!!!

if mainstream economists were any good (at forcating etc) we wouldnt b in this mess.

bottom line is rising energy prices make everything dependent on energy more expensive; e.g. food, transport, people hence there is less money to spend on other things, hence recession, expensive energy equates to lower growth, central bank pump money to compensate for fall in asset values and prevent deflation.

Kurt Vonnegut's brother was a scientist who studied cloud seeding. He (the brother) investigated silver iodide which has a perfectly hexagonal molecular structure,and therefore is almost perfectly hydrophilic, and makes a perfect cloud-seeding particle.

Every western state has a cloud-seeding budget. Cloud seeding has massively disrupted weather patterns across the west, and, ironically, has exacerbated drought conditions as it has shifted macro-air movements from nonrmal patterns.

Anyway, that's where Kurt got the idea for ice-nine. Trivia, but fun trivia.

Cloud seeding, loss of ~2% of the of the earth's land surface area to dam reservoirs, and a significantly larger percentage being systematically irrigated to feed billions of additional people over the last century... (not that scientists who ask for money to look into such matters are likely to get it, unless they throw in some boogeymen acceptable to their peers - like CO2).

Deflation is only bad for banks.
One argument is that goods will be scarce because peeps wont make money selling them.
I dont think so.
Crazy world we live in when all it takes is an elementery understanding of our financial system to understand its curruptedness. But hey, the kardashians are on!

My fam looked up to my older bro as this wise all-knowing cat. Went to a top school and got an engineering degree ect.
I had to be the one to explain to him that the FED was a private institution and the mechanics behinde its lending. I have a GED. Goes to show what A UC berkely education will get ya..... Fuckin brainwashed.

There are some book smart ones who have gotten their hands dirty and their ass kicked. A "education" does not guarantee the absence of critical thinking just ensures a high degree of probability it will be absent. Many have learned to keep their mouth shut. Expressed critical thinking is the quicxkest way to fail in the educational system. On the other hand a semi epsilon moron can get a phd by parroting.

"One argument is that goods will be scarce because peeps wont make money selling them. I dont think so."

Yeah it's an argument I've never understood either. I mean, lets look at just a tiny number of things: Computers, TV's, Games consoles, DVD's and BluRay and their associated players, board games, anything using GNSS, Phones and plenty more.

Each of the above will be cheaper next year (if not in the next three months) by as much as 50% yet people still buy them *today* if they have the cash to spare.

" But hey, the kardashians are on!"

It may sound funny but it was only earlier on this yr I actually bothered to see who the fuck the kardashians were. I haven't owned a tv for years yet that name kept popping up (along with booboo-hunny or some shit) so I thought I better google it to see what people were talking about when it was mentioned. In short, I'm bloody glad I got rid of the tv if that's the rubbish that's on it these days.

And also for anybody who has debts I believe. Since their true value ceases to decrease over time by price & wage inflation. But for consumers, price disinflation and deflation are good things and are often associated with commercial success. See IT gizmos which have come down in price over the past 20 years. Which also explains why Govts include them disproportionately in their fake CPI measurements.

To the contrary, I think the Fed knows exactly what it is doing. The fact that they are digging the graves for 99% of Americans is not a mark of stupidity. I think it is really part of their game plan to inculcate this stupidity meme into the alternative media. Stupid - no. Evil - yes.

Why wouldnt the fed let a deflationary storm hit, let the banks go kaput and let their real master buy up assets on the cheap just like they always have before? The tightening can be blamed on any of a myriad of reasons many of them mentioned here daily so the fed can maintain its facade of being the protector of the economy and the crisis can be used just like it always is. The new crop of politicians will be owned by the fed just like the old ones. Wheres the problem?

The last paragraph above is particularly important. The biggest fear of the Federal Reserve has been the deflationary pressures that have continued to depress the domestic economy.......

Fear?????????

This fed reserve gives a flying fuck about anybody or anything.....Seniors, savers, middleclass , ANYBODY........like this president they only care about POWER.......they represent pure 100000000 0percent evil , deception , greed....... at some point God, karma, justice , good will put these evil people in the same place hitler and Mussolini ended up......At that time i will display the american flag with honor

I am having a hard time understanding how making things less expensive will make people buy less. The money the Fed has created is not getting to the people anyway. All it is doing is preventing the banks from writing off loans and recapitalizing. It sure seems that writing off loans and recapitalizing is the better long term solution.

Deflation is indeed what would have happened without the intrusions of the central bankers and congress. But deflation is the worst thing that can happen to bankers, and with the help of congress, Ben ain't gonna let it happen.

Deflation caused by debt overload cant be cured by even more (inflationary) debt. Sure debt can be transferred and maturities can be extended. However, its like streching an elastic band - at some point it will break.

If the dollar collapses, holding gold notes or even the real shiny stuff won't help. The FED and Homeland Security will seize it from you - you can take that to the bank. Then the Fed will give you the new dollar for your gold and you will thank them or be arrested. Better to buy a small farm and have a cow, chickens and perhaps a few pigs.

Hopefully the states will continue to pass laws alowing them to issue currency, like AZ just did.

I would like to see the dollar backed by a basket of goods; perhaps

20% gold

20% silver

15% copper

15% Paladium

25% energy unit (gas/shale or US Oil)

5% Kentucky Bourbon

US Clearing house will back the dollars with the basket and deliver it upon request.

Biflation (sometimes mixflation) is a state of the economy where the processes of inflation and deflation occur simultaneously.[1] The term was first introduced by Dr. F. Osborne Brown, a Senior Financial Analyst for the Phoenix Investment Group.[2] During Biflation, there's a rise in the price of commodity/earnings-based assets (inflation) and a simultaneous fall in the price of debt-based assets (deflation).[3] The price of all assets are based on the demand for them versus the volume of money in circulation to buy them.

With biflation on the one hand, the economy is fueled by an over-abundance of money injected into the economy bycentral banks. Since most essential commodity-based assets (food, energy, clothing) remain in high demand, the price for them rises due to the increased volume of money chasing them. The increasing costs to purchase these essential assets is the price-inflationary arm of Biflation. With biflation on the other hand, the economy is tempered by increasing unemployment and decreasing purchasing power. As a result, a greater amount of money is directed toward buying essential items and directed away from buying non-essential items. Debt-based assets (mega-houses, high-end automobiles and other typically debt based assets) become less essential and increasingly fall into lower demand. As a result, the prices for them fall due to the decreased volume of money chasing them. The decreasing costs to purchase these non-essential assets is the price-deflationary arm of biflation.[4]

The reality is increasing circulating debt is decoupling from productivity - causing deflationary exconomic activty in the midst of inflationary pricing The only solution is issued currency from loans or ctrl-ping or whatever must relink to productive creation of real wealth. In order to accomplish this everyone in the USA who is on benefits or entitlements must have them cut, forccing everybody to produce something of value for the money they earn..secondly the debt must be defaulted on immediately, it should remain in perpeutiy a criminal act to lend *any* government *any* money.. But that is not what will happen at all. The will continue to lend created fiat to the US government as millions on entitlements will spend that money which will continue to buy less and less... We can wine all we want but in the end it is how the rules are defined and those on the right side of this current structure will profit, prosper, or be guarded.. Everybody is wondering what the 'black swan' event will be - and I am suspecting it will be a contrived middle-east war with a small nuclear exchange with possible scatters of flag flag terrorism all contrived to crash the markets and switch from the US world reserve currency to to UN world reserve currency backed by 'digital gold' The purpose of the digital gold is to simply end-run around China, India and the gold holders everwhere to make their prepatory plans null. Google anglo-saxon agenda for WWIII. Watch Syria when she falls know an Iranian middle east war is soon to follow.

I would like to point out something I have been thinking about the bankster ZIRP/ QE policy. They claim it is to stimulate the economy, and it seems most articles I read about the whole issue miss completely what the banksters are accomplishing without anyone noticing.

What they are accomplishing is really fantastic: They are buying up government IOU's and mortgage debt virtually interest free with money they create at will.

It would be a mistake to think that 'we the people' will be let off the hook on this. They will get paid back. They will be in first position.

All this is being done 'for our own good' to stimulate the economy, so we can all be employed and live happily ever after. And all the people hang on every word that comes out of these peoples mouth as if they were the prophets of God dispensing manna from heaven. Truely surreal.

The fiat system is hopelessly corrupt and nothing can be done to save it. The sooner it collapses the better. Deflation is the natural state of a growing economy in a free market as productivity increases result in more goods being chased by a more-slowly growing supply of monetary units. This is bad for debtors, and since the modern state is the ultimate debtor, this aspect of free markets had to be done away with in order for the total state to begin its rise. The association of deflation with economic depression is a creation of Keynesian nonsense used to justify the ever-increasing money printing and debt creation which benefits only the banksters and the statists.

Prices move before wages. Deflation benefits those who save and live off of income. Inflation benefits those who are leveraged to the 3rd generation's eyeballs and /or own things and productive assets producing what people need.

Old paradigm thinking. Its all about resources now. The 1% ers know their money is ultimatly worthless. They know this acutely because if they used their money to buy up resources ironically it would cause the event that would render them powerless. What pisses the 1% off is the that the rabble is consuming THEIR resources. They are using every tool they have to lower consumption, at the same time not choking the sytem so much it collapses. When it collapses it will be at a time and in a manner that best suites their desires.

money velocity zero- lowers consumption

lower wages and less jobs-lowers consumption

lower birth rate-lowers consumption

higher prices of commodities-lowers consumption

The ultimate means of lowering consumption will be radical. If the 1% dont implement it the ratio of humans to resources will. Inflation vs deflation is smoke and mirrors. The idea of what benefits who is relative. Did you consume food today? Did you consume energy today? Did you consume water today? These are vital resources. If I consume half a liter of water instead of one liter is that inflation or deflation? If you live in the USA you are the 1% compared to the rest of the world. Every single human in the USA consumes much more than a human outside of the USA. Like it or not simple math shows we are the 1%. They are the 1% only by arbitrarily stopping the sample at the borders of the USA to further a argument. Consumption will be lowered that is a mathmatical certainty. The question is whether it will be lowered with any degree of compassion and if history provides guidance that is doubtful.

" Are we experiencing the 1970’s all over again as inflation kills the economy, or in the words of Ben Bernanke, have we entered an era of low inflation and interest rates that will last for some time as the threat of deflation remains a prevalent enemy to the economic recovery? "

The fall guy: Deflation. Why do bubbles deflate? Because thery were inflated. The threat of deflation is not the problem. The inflation that preceded, is the problem.

Every boom ends in a bust. The problem is not the bust, the problem is the boom.

If we crashed to the bottom in 2009, instead of papering over, we would have had a recovery already.

It is the papering over that is preventing a recovery, not the threat of deflation. Once you hit bottom, you have nowhere to go but up.

Prices move before wages. Deflation benefits those who save and live off of income. Inflation benefits those who are leveraged to the 3rd generation's eyeballs and /or own things and productive assets producing what people need."

Unless you save cash, you aren't really a saver, you are a creditor. When banks failed in the 1930's, people lost their savings, as banks had made bad loans with them.

Why is the FED at all worried about deflation, unless they created a tremendous amount of inflation? In the last 100 years the dollar has lost what, 97% of its value? Stable prices is supposed to be a mandate of the FED. What are stable prices? The FED says 2% inflation. In actuality a stable price is ZERO inflation. A stable price doesn't change.

At a 2% target, the FED is always inflating, not stablizing prices. If prices were to stablize, they would have to deflate back to what they were 100 years ago, when the FED started inflating them.

Maynard "Fly in the Mayonaise" Keynes .... knew all this shit was coming down .... he just didn't tell anybody ? LOL Monedas 1929 Comedy Jihad Engaging In The Inter-Racial Dialogue Our Clean And Articulate "Nigger" President Asked For World Tour